When you’re talking about financial planning, you can’t leave out healthcare, says Peter Stahl, author of Top of the First: The Convergence of Healthcare and Financial Planning. It’s one of the most important parts of your retirement, after all. And it’s one of the biggest expenses, too.
Medicare is one element here that confuses a lot of people. Peter has some solid advice for navigating that program. He also highlights three things you can do to maximize your healthcare funds when you retire.
There’s a lot more on this vital topic, including…
- How to maximize your health savings account
- Ways to plan effectively for long-term care
- The right time to enroll in Medicare – it’s different for everybody
- How the new tax law could impact your healthcare planning.
- And more
John Curry and Peter Stahl Episode Transcript:
John Curry: Hello this is John Curry, welcome to a new episode of our Secure Retirement podcast. I am in New Haven Connecticut for a conference this week, it's called Retirement Income Masters and I'm sitting here with my friend Peter Stahl. Peter, welcome.
Peter Stahl: Thank you, John.
John Curry: Peter Stahl is unusual fellow in the sense that he talks about the convergence of healthcare and financial planning. And Peter you've been to Tallahassee to do a couple of workshops for me, our clients loved it, our advisors loved it. So what in the world is this convergence of healthcare and financial planning, and a little bit of your background please.
Peter Stahl: Sure, well I've been in the financial services industry John my whole career, which is about 30 years. But back in 2012 I put together my business to really train and educate both consumers as well as financial advisors on some of the central financial planning components that surround retirement healthcare.
John Curry: Very good, and you make the difference to the way to emphasize that, retirement healthcare. So how does retirement healthcare differ from me going to work, and working, have a career and I'm not retired yet?
Peter Stahl: Right, good question. Healthcare, the primary way people get their healthcare during their working years is through their employer. Almost to the point where we just take that for granted.
John Curry: Yes, we do.
Peter Stahl: So that's just the way it's been for a number of years, and there's tax incentives at the company level that have kind of driven that, and that's grown. More recently we had the Obamacare exchanges for people that aren't getting their insurance through their employer, they're getting their insurance on an exchange and so that's the primary driver there within that marker.
When you transition to retirement, it's all about Medicare. Medicare is mandatory, Medicare will either be in part or in whole your healthcare during retirement. And then you have other issues, both as you accumulate wealth for that retirement space, and then as you move into retirement, such as custodial care. So both the ins and outs of Medicare, and then the complexities of some of the issue surrounding custodial care really make up the core of the retirement healthcare discussion.
John Curry: I get questions literally every day that I work, because most of my work is in retirement planning. I get questions about Medicare, and I didn't pay much attention to it until we started getting you coming in doing workshops for us, and as I was getting closer to 65 as of December of last year, 2017, so I had to do a little homework myself. And I was surprised at how little I knew. I knew a lot about solutions security but now as I'm aging and my clients are aging, I'm getting more and more questions about Medicare, so we've got to bring you in to do another workshop.
Let's talk a little bit about the different components of Medicare. Many people think I just call up Social Security or I go online and register for Medicare and it's not big deal. It's more complicated than that, isn't it?
Peter Stahl: It is in the sense that a lot of us have the mindset that we have to enroll in Medicare at age 65, for example, where the trend in our country has really been aligning your Medicare enrollment with your retirement because meany people have company insurance that carry them through all the way until they retire, and because those retirement ages are being pushed out to later in life, we have many people that are working until 68, or 70 or 75 and retiring and enrolling in Medicare at that point.
Now, there is some complexity, there are some folks that will have to get enrolled at age 65 so nothing's quite as simple as it seems in the service, but the general trend is lining up that Medicare enrollment with your retirement, so yes there's a lot of nuances to this Medicare that people don't realize, that being one of them.
John Curry: There's a lot to learn, too. I know in my case I took part A, enrolled in part A but didn't take part B because I'm still working and have a group plan. So down the road that'll change, and Medicare will be the primary.
Let's talk about one of your big issues you always talk about. You touched on it today some, and that's health savings account. Talk about that and the role they play in helping cover in post-retirement years.
Peter Stahl: Sure, it's an exciting topic, the health savings accounts. The first thing you need to recognize is health savings accounts are not available to everyone. They're available if you have the right type of insurance. When I say the right type, there are certain stipulations that a health insurance plan has to meet. It's called a high deductible plan, so there's deductible stipulations and there's a few other, both federal and state stipulations that this insurance policy has to meet. If it does so, it qualifies as let's call it HSA insurance. So you'll have a health savings account along with this high-deductible health instance plan.
So this is, you know many employers are offering this, and people that are self-employed. It's about 30% of the working population, has a high-deductible health insurance plan that is HSA approved. The concept is, you put money into the health savings account, it goes in pre-taxed. So that's pre-federal, pre-state, pre-FICA. And when I say pre-state, that's 47 of the 50 states. And then, you can take the money out tax-free for qualified health expenditures. But what's happening John, in our country is people are recognizing that health care costs for most of us will be greatest during our retirement years.
And so they're using the health savings account as a way to save for healthcare expenses in retirement. And so rather than having the money come in the front door and go out the back door in the same calendar year, they are paying this high-deductible with other disposable income and therefore freeing themselves up to invest the HSA and let it grow for retirement.
John Curry: And really what they're doing is, in a way, pre-paying those costs, aren't they? So they're setting money aside today to take care of a problem that we know if we live long enough, we're going to be facing it.
Peter Stahl: Exactly and so they're recognizing that health care is probably my largest expense during retirement. It's a mandatory expensive and so I need this specifically planned, save and invest for it. And so they use the health savings account to that end.
John Curry: On the panel today you made that comment about mandatory expenses. Explain to our listeners what you mean about that, because some people out there are thinking "It's not mandatory, I don't have to have health insurance."
Peter Stahl: Well, mandatory in the sense that you want health insurance, you'll need to get enrolled in Medicare. And it doesn't matter if you're very affluent for example and say "Well couldn't I just elect for some sort of private health insurance, and not opt for this government Medicare system?" No, it doesn't exist. So if you want health insurance when you make that transition from employer based insurance, or from one of the state exchanges that you're on into retirement Medicare will be your insurance. Now there's federal benefits that can work in conjunction with Medicare, retiree insurance, becoming a little more rare, but there's certain retiree insurances out there once again can work in conjunction with Medicare. But either in part or in whole, you're going to be needed to enroll in Medicare, and there are costs.
You mentioned that part B, it carries a premium. Part B, your prescription drug plan, it has a premium. Most people go out and get a Medigap plan to fill in some of the holes, it has a premium. So there are costs and the costs actually vary for some of the pieces based on your income. So some of the people are going to be paying a lot more for this coverage than others.
John Curry: Absolutely. We just had a cost of living adjustment increase with Social Security that people I'm talking with said "I didn't see it." Because my Medicare premiums also went up.
Peter Stahl: Right.
John Curry: And let's talk about what you're seeing at that end?
Peter Stahl: Yeah, it was interesting. In 2017 Social Security announced a two percent COLA, cost of living adjustment.
John Curry: Finally, the year before was only .30.
Peter Stahl: And the year before that it was zero, so people were actually pretty excited about a two percent pay raise. And then as you just stated, they got their statements and they're looking at them and scratching their heads saying "I'm not seeing any increase." So there's really two things that went on unique to 2018. One of them was, most people saw a pretty substantial increase in their Medicare part B premium. They had been sheltered from increases in their premium over the last couple of years, due to complexities that we can't get into on a podcast, but they had been sheltered from previous increases of Medicare costs and that sheltering went away in 2018, and so they saw a pretty sub sizable bump in their Medicare costs.
Medicare comes out of Social Security, so that wiped out the 2% COLA. And then John, the other thing that happened is some of the income levels to determine what your Medicare premiums were going to be got changed, for the more affluent households in our country. And as a result of that, some of the more affluent households actually saw their Social Security Benefit decrease because their Medicare B increase and D increase was even more sizeable.
John Curry: And the ones I talked with were not very happy about that.
Peter Stahl: No, they weren't.
John Curry: They don't like that. When I do individual consultation or in seminars or in speeches, that comes up quite a bit. Talk a little bit about the impact Peter, that the new tax law has on the planning for healthcare.
Peter Stahl: Well, there's a lot of good news in the tax reform that was passed, but there wasn't a lot of direct change as it relates to Medicare and tax planning for retirement. Most of the changes were on the corporate side. Now there is one piece of that, one major exception to that in that there is a new bracket introduced for the most affluent households in our country that will drive up Medicare costs even further for them, so that the one footnote to all that is there will be for the affluent households in our country a pretty sizeable increase next year in their Medicare premiums.
John Curry: Right. Very good. What are some of the things that you think anyone getting close to retirement ... Let's say they're five years away, or they're stepping out of the workforce into retirement. What are the things that you would love to share with them to get them to think about these issues?
Peter Stahl: Yeah, I would say, I mean if we could back up five years as you just said to do some planning, terrific. If we can back up 10 or 15 years, even better.
John Curry: Much better.
Peter Stahl: So what I always tell folks is, as you accumulate money for retirement, and those peak earnings in accumulation years, let's call it from age 50, 55ish, all the way up until you retire, there's some changes to the traditional ways of saving money that you should consider. Number one is, if you have a 401K at work, 401K's are terrific, but there's two versions of a 401K. A traditional, and a Roth. I'm always encouraging people for their employee deferrals, the money they're putting in out of their paycheck, to start building a balance in the Roth, because the Roth will give them a tax-free cash flow in retirement, very important. So consider the Roth would be point number one.
Number two would be the health savings account that you brought up a minute ago. If you have the ability to chose a high deductible health insurance plan and you do your research and figure that's maybe a good option for you and your family, then fund that HSA and don't spend it. Get it invested and let that thing grow. You have to have enough disposable income and your emergency fund in place so that when life happens, you're not going to be forced to tap it during a market downturn. But get that HSA working for you, fully-funded, and let it grown.
And then the other piece of it is, just consider tax efficient investing. A lot of folks are looking at big capital gain distributions this year. That's a nice problem to have, I mean the tax return with a lot of capital gains means you've got a nice investment portfolio generating those, and a good problem to have but considering tax efficient investing, tax deferred annuities. There's ways to help control some of those taxes so that you can be in a position to manage some of them, medicare costs driven by those in retirement.
John Curry: My friend Ed [inaudible 00:13:38] likes to talk about forever taxed, retirement counsel IRA's and never taxed, Roth IRA's and life insurance.
Peter Stahl: I like that.
John Curry: And he's right about that, if they're used properly and also to help cover some of the costs in long-term care down the road. You talk about that quite a bit too, just from the standpoint of what's going to happen in retirement. So let's talk about now you're in retirement, what is your research and your teaching say about the different types of healthcare costs in retirement?
Peter Stahl: I like to break it down in terms of routine costs, what I call kind of your meat and potatoes, your day-in to day-out, month-in to month-out costs.
John Curry: I stubbed my toe, I've got to get to the doctor, right?
Peter Stahl: Right. And that's everything from your premiums on your Medicare, to the copays to the deductibles, to things that aren't covered, the dental work, the vision ... But then recognizing that an even larger potential cost lurks out there, even beyond the cost John of potential non-financial implications of your family, if and when you a custodial care event. And so I break it down, routine costs and custodial care. Custodial care meaning the non-medical events, so help getting out of bed, making your meals, getting around the house, using the facilities, taking a shower. We all know people and have had life experiences where people due to medical conditions need help with these activities and daily living. That can have enormous both financial, and non-financial implications on your retirement.
John Curry: Absolutely, and many people are surprised to learn that's not covered by Medicare and their health insurance coverages. It's just, it's not adequate.
Peter Stahl: It's not, and the other thing that people automatically think I'm talking about nursing homes. Well I might be, in about 30% of the situations a custodial care need gets the point where a formal nursing home environment is the best and sometimes the only solution. But the more common scenario is people who are getting their care at home by loved ones.
John Curry: Right.
Peter Stahl: Loved one's meaning your spouse or your daughters. The daughters are a lot better at this than the sons, that's just the reality and if we don't plan for this, it can be crushing on the people we love the most.
John Curry: I've heard you say several times now, that the long-term care situation, or custodial care as you describe it, which I like better, it's not about you. It's about your family, it's about the people you love and care about who will have to change their lives to care for you. Would you expand on that?
Peter Stahl: Sure, as I consider this for myself, the question I need, as challenging as it would be in my life to need custodial care, and I'm a typical healthy guy who likes to exercise and eat right. Having a custodial care event is the furthest thing from my thought. But the reality is, if it were to happen, who would provide the care for me?
This is not about the challenges that I would face personally, this is about my spouse and my daughters because they realistically would be the ones that get involved with my care and they've got very full lives, and my spouse is not the same age as I am. So if I have a custodial care event at age 75, at age 80, is she going to be equipped physically from a health point of view to care for me? My daughters at that point will be hopefully having a family and managing a wonderful career. Are they going to have 20, 25, 30 hours a week to get involved in my custodial care? We need to think these through. It's not about me, it's about the impact caring for me would have on their life.
John Curry: I've been doing this for 43 years now, and one of the saddest things I se is someone needing care, a mom or dad, and then you have the brother and the sister let's say that argue. And one is providing, in charge of the care and one is attempting to, or maybe not even attempting to. And then they fight over assets later, if there's anything left because "Well I gave all the care, I deserve something." And the other one says "No, we split it 50/50."
And it's very frustrating because with proper planning that could have been taken care of either by investing money to set aside for that purpose, purchasing a traditional long-term care insurance policy, or if appropriate, having a life insurance policy that has a long-term care rider on it, or other types of programs or even annuities you can purchase that have long-term care provisions. And I get so frustrated because surely someone, some financial advisor told you about this before you got to me, and they always say no.
Peter Stahl: Yeah it's amazing how early on we are in this country with all these conversations. The first baby boomer hit age 65 a couple of years back now, summer of 2016, so now we've got 10,000 people a day turning 65. 10,000 people a day turning age 70. An age where they're really dealing with these issues, in fact that's why I called my book Top of the First, because despite these issues having been around for so long, we're just more recently as our country ages getting after them and dealing with them. And to your point, there's a lot of ways to equip your financial plan to be ready for custodial care need. It's not just long-term care insurance. That's a very viable and a good solution, but there are what they call asset-based products, and hybrid products and life insurance and annuity ... There's a lot of ways to create income to help out the daughter, the wife, the husband, whoever it is handling that care.
John Curry: Child or grandchild. You know Peter one of the things I tell people is I don't know that you need to purchase long-term care insurance, but you certainly need a plan in place to fund long-term care because if you live long enough, you're going to have a problem. Now that might mean that you allocate your Social Security payments so that maybe you don't need the money, and so invest it or just use it for the care. We have just a few minutes left, talk a little bit about your book. What prompted you to write this book?
Peter Stahl: Well I started speaking back in 2012 about these issues and I just realized the vast need for eduction on these topics. And there's a number of ways people like to get educated. Sometimes it's a live presentation, so I travel the country coast to coast-
John Curry: Yes you do. [crosstalk 00:20:41]
Peter Stahl: But, like myself, I like to read. I'm a prolific reader both for personal enjoyment as well as professionally, that's how my brain works, that's how I digest information, show it to me in writing. So I thought alright, I will put this out into print as well. And now we're getting into podcasts, and video and into other ways to get that information out there, so I put the book out there to really go through the central issues and to allow people to have a resource to understand how to think about them.
John Curry: Well the title of the book is Top of the First, the Convergence of Healthcare and Financial Planning, and the author is Peter Stahl, and that's S-T-A-H-L, Peter Stahl. Peter, anything you want to share in closing with our listeners?
Peter Stahl: Well I would say there are some encouraging trends when you look at the number of people that are recognizing they need to start to address these issues, and save and invest specifically for them. That trend is a positive trendline when you look at it, so despite the enormity of these costs and some of the complexities around the alphabet soup of Medicare, people are recognizing "I need to get after this, and I need to do it well before I get to retirement." And so I'm encouraged by that.
John Curry: Talk a little bit about the importance of coaches to help you along the way. This is a very complicated subject for financial advisors, this is a complicated subject for me. The more I study it, the most I realize how much I need to study it. So let's talk about the importance of having someone that you can work with that understands your situation and help you.
Peter Stahl: Yeah, I close my book John, you just made me think of this, and I mention this in the forward as well in that there are a lot of pieces to this puzzle, and you do have the do-it-yourselfers out there, right? And if you like to delve into stocks and bonds and investments and annuities and mutual funds, and you want to put your own plan together and can figure out growth versus value and international domestic, great. I personally like to have a financial advisor even though I'm a CFP myself, I have an advisor to oversee all my assets.
But when you add in the complexities of healthcare costs and custodial care, the alphabet soup of Medicare to try to do this on your own to me speaks volumes as to why people rank healthcare as their number one concern. It is very complex, and simple things such as proper use of an HSA, the Roth 401K versus the basic 401K, people tell me "You know, I've never heard that before." So finding an advisor such as yourself who takes a wholistic approach is critical.
John Curry: Well I think you're right about that, and one of the things that occurs to me as we're sitting here in New Haven, Connecticut, is we're talking about just one piece of the puzzle and we've gone for almost 25 minutes here just talking about Medicare and healthcare issues. When you start factoring in how do you plan for inflation? Because healthcare costs are much higher than the regular inflation rate. So there's so many parts to this thing and it's not just about the healthcare. How do I make sure I don't run out of income? How do I coordinate my pension if I have one, my 401K with my Social Security? All of this stuff is a bunch of moving parts. But I'm getting the same reaction from my clients who are telling me, my biggest concern is how do I pay for healthcare in retirement? Where will the money come from? And if I have a custodial need, custodial care need, how will I pay for that?
Peter Stahl: Right, and we want to enter retirement with peace of mind. And the way we do that is by properly planning ahead, and it can be achieved. You addressed the custodial care concern, you addressed the routine healthcare costs, and you build and invest and save appropriately for those. Then you get to retirement and you move through retirement knowing that you're going to have to worry about it.
John Curry: And it does take a little work, you have to take the time and be willing to take the actions necessary to make sure that you have that peace of mind down the road.
Peter Stahl: Absolutely.
John Curry: Peter, tell people how to get a copy of your book.
Peter Stahl: Easiest way is right on Amazon, if you go onto the Amazon.com book sale section, the top of the first and with my name it would come up with a search. I also have a website to my speaking business is Bedrock, Bedrock Business Results. So if you can go to my website, which is a google search will do that as well. But you can go to my website as well and find the book.
John Curry: Peter Stahl, thank you so much. I've enjoyed being with you today.
Peter Stahl: I've enjoyed it as well.
If you would like to know more about John Curry’s services, you can request a
complimentary information package by visiting JohnHCurry.com/podcast. Again, that is
JohnHCurry.com/podcast. Or you can call his office at 850-562-3000.
Again, that is 850-562-3000.
#2018-61433 Exp 6/20